The most recent Gallup Poll on what Americans think is the best way to create jobs is a bit disheartening because it flies in the face of basic economics. Protectionism is the number one way Americans believe more jobs can be created. This was true for Republicans, Independents and Democrats. The data suggest that the Obama Administration is in touch with what people want as the President has certainly shown protectionist mettle.

The phrasing of the top answers was “keep manufacturing jobs in the U.S” and “lower taxes.” Gallup titled the article “Americans See Protectionism, Tax Cuts as Ways to Create Jobs.” This seems accurate although I should note that there was a question asking whether we should use more “Buy American” measures to protect jobs and fewer respondents wanted this. So, Americans are not calling for protectionism of the Smoot-Hawley variety.

On other issues, notice the shift in priorities between Democrats and Republicans on tax cuts, regulation, and infrastructure projects. I interpret this dichotomy as demonstrating Republicans favouring lower taxes and less regulation to help small business. Think Joe the Plumber. Democrats back more direct job creation measures.

President Obama is trying to take a middle road in part to mollify blue dog Democrats in Congress in the lead up to 2010 mid-term elections. Given the polling data, I do not anticipate his administration will favour direct jobs creation as the primary means of creating jobs. However, I believe that the economy will stall without this direct job creation and this will mean a major defeat for Democrats in 2010, making Congress more hostile to the Administration’s priorities.

As for protectionism, Obama has shown repeatedly that he is not a free-trader. Back in January, the dean of free trader Jagdish Bhagwati called Obama a protectionist. I have begun to share that view. The data show that this is how Americans want their President to act. I believe China is the likely target of any protectionism in the U.S.

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

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11 Comments

Its a little late for protectionism, isn’t it, when you’ve already lost your industries? A great idea in 1973, protectionism would be useful today only in connection with a kind of full-scale Five Year Plan utterly to reindustrialize the United States. In the meantime, WPA and CCC projects offer the only hope for immediate benefit to starving families. But I wouldn’t hold out much hope of these ever being adapted. They don’t offer much in the way personal enrichment to the White House and Congressional fungi that would be asked to initiate them.

And protecting against China will only cause that production to move to Vietnam or Indonesia or wherever. I don’t see Krugman’s argument for protectionism. It’s a losing strategy. But I think it is the one we are likely to see.

I agree with Paul Krugman, I could imagine protectionism have a net positive influence although it would be suboptimal:

How would a trade war be bad even if we do assume the retaliation as consequence? How does it harm American and European workers? Regarding the latter, it might decrease German exports.

Even if there would be retaliation, the retaliation means the politicians in those countries care about their citizen’s interests, not the interest of capital, and their reactions to protect their own citizen should be respected as it is a sign of virtue that they are willing to protect their constituents interests.

A protectionist regime, even with retaliation, would benefit most workers in developed countries because it reduces the labor supply by cheap foreign labor too expense because its cost is raised via tariffs. Furthermore, it increases capital’s exit costs thus reducing the mobility of capital. For example, if a company wants to relocate to a cheaper country under a protectionist regime, it can do that, but the exit costs would be losing market share in that country. Free trade benefits capital by removing exit costs. This would harm capital more than a weak dollar.

Another aspect of protectionism is that it would remove the pressure for European welfare states to accomodate capital, and shift power from capitalists to the state. Another impact of a protectionist regime is that the tariffs will be very hard to remove since people in the country benefit from the tariffs. The Nash equilibrium would be for countries to keep the tariffs once they are in order.

A trade war? Smoot-Hawley II?… bring it on!!! I am willing to gamble with protectionism as a means of reducing the influence of the globalized predator class.

BTW, Smoot Hawley did not cause the Great Depression, nor did it make it “Great.” This is another reason why I do not fear retaliation or a trade war. See this:

“BEIJING — D’oh! China has banished Homer Simpson, Pokemon and Mickey Mouse from prime time. Beginning Sept. 1, regulators have barred foreign cartoons from TV from 5 to 8 p.m. in an effort to protect China’s struggling animation studios, news reports said Sunday. The move allows the Monkey King and his Chinese pals to get the top TV viewing hours to themselves.

Foreign cartoons, especially from Japan, are hugely popular with China’s 250 million children and the country’s own animation studios have struggled to compete. Communist leaders are said to be frustrated that so many cartoons are foreign-made, especially after efforts to build up Chinese animation studios.”

While protectionism does have its drawbacks, I think there are two reasons why some form of partial or moderate level of protectionism isn’t horrible.

First, I recognize the danger of reciprocal action, but the drawbacks of protectionism assume a functioning marketplace. It is like the old engineer joke about a chicken plucking machine: first, assume the chicken is completely spherical.

Second, there is the illusion of retrainability. Perhaps this is a paternalistic argument, but there are people out there with limited retrainability. One of the assumptions of market turnover: new jobs and new job sectors, is that people can fill those roles. Yet, the number one qualm of employers is finding enough “qualified” workers. Employers in today’s market have to provide absurd “training” programs and where they can’t afford it, they look only for people with years of experience in the industry.

Businesses have become very specialized, even in their paper pushing. Someone I know has a job primarily dealing with scheduling for folks & doing some other assignments. By all definitions she is an assistant for a department. A co-worker came over and said she had nothing to do and the person I know couldn’t give her anything to do because it was too specialized.

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You sometimes have to help shape a market to the people you have. If everyone in this country was 300 pounds, we wouldn’t be subsidizing too many schools for ballet, but we would more likely subsidize exercise/gyms.

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